Mizuho Bank has become ensnared in North American legal fallout from Mt. Gox, once the world’s biggest bitcoin exchange, which collapsed last month after losing nearly half a billion dollars’ worth of customers’ digital currency.
Lawsuits in the United States and Canada represent a new legal front — and a deep-pocketed defendant — in the battle over Tokyo-based Mt. Gox, which claims hackers stole huge amounts of its assets and those of its customers.
Mizuho, the core unit of Mizuho Financial Group Inc., Japan’s second-biggest mega-bank by assets, was added as a defendant Friday to an existing U.S. lawsuit against Mt. Gox for allegedly aiding in a fraud by providing banking services to the exchange.
Also Friday, Mizuho was named in a class-action lawsuit in Canada against Mt. Gox alleging a lengthy security breach at the exchange resulted in “the pilfering of millions of dollars’ worth of its users’ bitcoins.”
A Mizuho spokeswoman in Tokyo declined comment Sunday on the lawsuits, filed in Chicago federal court and the Ontario Superior Court of Justice.
Mt. Gox closed its virtual doors Feb. 25 and three days later filed for bankruptcy protection with the Tokyo District Court.
The company said it had likely lost all 750,000 customer bitcoins it was holding, as well as 100,000 of its own, and ¥2.8 billion in cash. That represents $567 million of vanished assets at current market prices, as well as about 7 percent of the bitcoins in circulation.
Mt. Gox blames systematic attacks on what it acknowledges was lax computer security. Customers — more than 99 percent of whom are non-Japanese — suspect a massive fraud.
On Monday, Mt. Gox filed for a U.S. Chapter 15 bankruptcy, which shields the company from lawsuits in U.S. courts as the Tokyo bankruptcy filing proceeds.
Mizuho held non-bitcoin currency on behalf of Mt. Gox and its customers, according to the amended U.S. complaint by Gregory Greene, an Illinois resident who says he lost $25,000 when the exchange shut down.
The U.S. suit accuses Mizuho of knowing of Mt. Gox’s fraud, of not segregating funds that belong to Mt. Gox from those of its customers and of continuing to provide banking services that inflated losses for bitcoin customers.
“Mizuho profited from the fraud,” said the complaint.
The Canadian plaintiffs allege that “all non-bitcoin currency received by the Mt. Gox defendants from its users was held in an account or accounts” at Mizuho. In fact, the bank by January was trying to close the exchange’s account.
An unnamed Mizuho bank manager, in a recording leaked on the Internet, asks Mark Karpeles, Mt. Gox’s 28-year-old French CEO, to close his firm’s account with the bank, citing compliance issues and moves by other lenders to cut ties with the exchange. The recording was confirmed as authentic by a person familiar with the situation.
If Mizuho had to close the account forcibly, the Mizuho manager warned, it could damage Mt. Gox’s business. “There would be confusion when your regular users try to deposit money. We don’t think that’s right,” he says. “If there’s confusion, we’d come under criticism and you’d be in trouble as well.”
Karpeles told the Mizuho official Mt. Gox was unwilling to cooperate.
The Canadian suit was filed on behalf of “all persons in Canada who paid a fee to Mt. Gox to buy, sell or otherwise trade bitcoins” and all those who had bitcoins or currency stored with Mt. Gox on Feb. 7.
While the U.S. bankruptcy stopped American courts from issuing orders against the Tokyo company, it does not protect Karpeles, the parent company, Tibanne Ltd., or Mt. Gox’s U.S. affiliate. On Tuesday, the U.S. assets of those three parties were temporarily frozen by the federal judge overseeing Greene’s lawsuit.